Honestly Speaking. Is CPF Good for Singapore?

You may have heard the term 401K being thrown around watching American movies. And not surprisingly, many people know that the 401K is the USA's de facto social security and pension scheme.

However, a study by the Mercer CFA Institute Global Pension Index 2020 revealed that the USA's pension isn't anywhere near the top of the list.

Out of the list of 39 countries, they ranked 18. One spot above our neighbour – Malaysia.

But what about our local pension scheme?

How does it stand out compared to so many others?

Before we get into that, let's first explore the critical points of CPF as a pension scheme.

The 3-in-1 System

What makes the CPF different from other countries is that it isn't strictly just for retirement purposes.

It also helps save for our housing and healthcare needs, making it a unique 3-in-1 system.

1. CPF Life – For lifelong retirement income

2. Medisave – For medical expenses and insurance premiums

3. Savings Accounts – For public housing purchases

Attractive, Risk-Free Returns

In addition to that, the annual interest of up to 6% per annum is guaranteed by the Singapore government.

Most other pension schemes would require their members to invest in an investment fund which means investment risks.

The fixed annual growth is, by comparison, a much safer way to grow our savings.

Flexible Payouts

Perhaps the biggest challenge for any government-backed pension scheme is designing it to cater for all citizens from every walk of life imaginable.

After all, you will have well-to-do individuals, families and others who may not be as fortunate. Different people have different payout needs.

To answer this challenge, CPF members only need to set aside the Basic Retirement Sum (BRS) to provide a fixed income in their retirement years.

For those who want to increase this amount, they can choose to do so through either one or both of these options:

1. Top up their CPF accounts

2. Defer starting their payouts at a later age

So, How Does It Compare with Other Pension Schemes?

Several more benefits work in conjunction with other Government schemes, such as the Lease Buyback Scheme, Silver Housing Bonus, Workfare Income Supplement, etc. Still, our focus for this article is on where does CPF stand?

Referring back to the study, you'll be glad to hear that we ranked 6th, tying with Sweden and Norway.

In addition, what makes Singapore's system different from the majority of the country on the list is that our local pension scheme doesn't rely heavily on government debt.

This is a crucial point to consider as life expectancy worldwide increases, which adds pressure on the tax-paying workforce and affects the pension scheme's long-term sustainability.

Instead, because CPF is a form of long-term "forced" savings, every Singaporean is responsible for their retirement income, thereby lessening the “burden” on each citizen.

On the flip side, the CPF is closely linked to several key government insurance schemes to help us better prepare and manage our finances.

We’ll explore a couple of these schemes in our upcoming articles.

Stay tuned for them.